Key Man Life Insurance: The Insurance Policy Business Owners Need


Key Man Life Insurance
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You have life insurance to protect your family in the event of your death, but what’s protecting your business? 

If you’re the owner of a business, ask yourself the following questions:

  • Where do you see your business years down the road?
  • Do you want your business to continue after your death?
  • Is your family equipped to take on the burdens of running a business? 
  • Would you like your employees to continue to operate your business?
  • Are there any other company leaders crucial to the survival of your business?
  • How would you like your employees’ taken care of?

These questions aren’t easy, but they are necessary in keeping your business staying in operation after your death. 

Let’s learn more about what a key man life insurance policy is, how it works, and why it’s so beneficial for your business and family:


What is Key Man Life Insurance?

A key man (key women, key person, key employee or key executive) policy is essentially life insurance to protect your business. The key man, or key person, is an individual whom the policy is taken out on.

The reason this life insurance coverage is purchased on the life of the key person is to protect the business from financial hardship due to an unexpected death.

These types of employees are often considered to be:

  • An employee whose sudden death would have a major impact on the survival or continuity of operations of the business.
  • An employee who possesses skills or holds a position that is hard to find a replacement.

The proceeds received from the life insurance policy are used not only to help keep the business operating with day to day operations, but also to help aid in replacing a key asset of the company.

Who is considered to be a key person?

Your key person could be any of the following company positions:

  • You, the owner or co-owner
  • Founder and co-founder
  • Partners
  • Vice president
  • General manager
  • Top salesman
  • Employees in vital key positions

Essentially, a key person can be any leadership role that’s absolutely critical to the survival of your business. This individual would be considered is a prime candidate for key man insurance.

Should the sudden death of a key person arise, this policy can cover the following expenses:

  • Payroll expenses
  • Supplies and inventory expenses
  • Storefront maintenance costs
  • Store rents and leases
  • Utilities and internet
  • Severance packages
  • Employee health insurance
  • Company debt

This not only helps your business weather the change, but it takes an extraordinary burden off your family’s plate during a difficult time. 

Now, let’s move on to how these policies work. 


How Key Man Life Insurance Works

By now you should have a good idea of what key man policies are, so let’s break down how they actually work. 

  • Identify the key persons who are integral to company survival.
  • Purchase policies on those key persons. This can also be yourself, the owner. 
  • The company itself becomes both the owner as well as the beneficiary of the policy. 
  • The company pays premiums on those policies. 
  • In the event of a key person’s death, the company will receive the death benefit proceeds. 

The next question is, how much insurance should you buy?

There are different ways to approach this. 

You can calculate a ballpark estimate of how much your business will need based on sales history and forecasts for example. 

However, a generally accepted rule of thumb is to purchase what you can afford, so what premiums can you reasonably pay?

This is why purchasing the right policy is crucial.  

When shopping for a key man policy, your best bet is to choose a term policy.


Affordability. The premiums are much lower than permanent insurance, and often more appropriate for a business. This isn’t personal life insurance, and you may only need a key man policy to cover a few expenses or a replacement just until the key employee retires.

When researching quotes, think about the most pertinent needs of your business. 


Key Man Policies are Crucial for Small Businesses

Speaking of, key man policies are particularly helpful for small businesses and startups.

With a small business there’s a lot of responsibility to go around, but few people to take it on, so the sudden absence of a key person can immediately upheave or even close that business permanently. 

In the case of these businesses, key man insurance can literally prevent bankruptcy.

However, some businesses may fold because the key person’s image or brand is center to the company’s marketing or profit share.

For example, when a popular band member dies or leaves their band, that band may break up because that person was so key to the band’s success and brand recognition.  

In the unfortunate event that your small business can’t weather the financial hit, a key man policy can help cover the many expenses and burdens of closing down shop. 

These expenses may include:

  • Vacation time pay outs
  • Multiple severance packages
  • Distribution of investor dividends
  • Past due invoices and other final debts
  • Deposit final paychecks
  • Paying a liquidation company
  • Payments of any outstanding SBA or bank loans

All in all, your key man policy can make all the difference in ensuring a smoother company closing. 


Set the Stage for An Effective Policy Roll-Out

The best case scenario is your businesses surviving and thriving in the absence of a key person, and a key man policy works best when the right interim leaders are at the helm of your ship. 

So how do you ensure your business can weather the storm?

You need strong company leadership in place. 

That’s why it’s crucial to promote the following organizational traits from the get-go:

  • Personal ownership: when employees are personally invested in the company they work for, they go above and beyond to ensure it’s operating at its best. 
  • Company culture: develop a company culture that promotes personal ownership, empowerment, and a sense of community. You want all hands on deck!
  • Communication: you need efficient communication channels and practices in place to manage sudden absences and key man policy funds. 

Moreover, you can sit down with your team to draft a key man plan, so to speak. 

Doug Messer, CEO and co-founder of University Beyond, had this fantastic idea: In the event of you or your key person’s death, make sure you already have a secured folder containing any essential documents and tools interim leaders would need. 

A strong plan increases your business’s chance of weathering the toughest of times, but it’s your insurance policy that gives your business the funding they need to fight on. 

So let’s recap what you need to do:

  • First, make sure you have a strong team in place, that you trust, who can take the reins in your absence. 
  • Draft an “emergency” plan that your team can put into effect immediately.
  • Choose a key man policy that makes the most sense for your business’s needs. 

You’re proud of the business you built, so why take any chances with its survival? 

Purchase a key man policy today to make sure it’s in great hands. 

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Key Man Life Insurance by Jeffrey Manola of Top Quote Life Insurance

Jeffrey Manola

Jeffrey Manola

Jeffrey Manola is an experienced life insurance agent and the founder of Top Quote Life Insurance. His mission when he created Top Quote Life Insurance was to provide online consumers searching for life insurance with the absolute best quotes for term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance.

Not only does he strive to provide you with the best rates for your life insurance coverage, but he also wants you to be well informed about the different types of life insurance options that are available. You will also find a significant amount of valuable information on the multiple life insurance companies that can provide you with coverage.

Jeffrey Manola is licensed to provide expert advice and help aid in the purchasing process of life insurance products. He is licensed with the National Insurance Producer Registry (NIPR) in the following states:

AL: 790866 AR: 14358927 AZ: 14358927 CA: 0K29801 CO: 531038 CT: 002536246 DC: 3000281706 DE: 3000190912 FL: W383615 GA: 3089339 HI: 482421 IA: 14358927 ID: 646048 IL: 14358927 IN: 3100885 KS: 14358927 KY: DOI-986908 LA: 758187 MA: 2045330 MD: 3000011601 ME: PRN252004 MI: 14358927 MN: 40427014 MO: 8428106 MS: 10519253 NC: 14358927 ND: 14358927 NE: 14358927 NH: 2434852 NJ: 1562332 NM: 14358927 NV: 3299018 NY: LB-1484031 OH: 1117369 OK: 100293583 OR: 14358927 PA: 740709 RI: 3000183893 SC: 14358927 TN: 2383399 TX: 1969337 UT: 648983 VA: 987464 VT: 3426230 WA: 947010 WI: 14358927 WV: 14358927

Never hesitate to reach out to Jeffrey if you need help. Top Quote Life Insurance is more than just an online quoting agency. We want to help you save money, protect your future, and earn your trust (888) 777-7574.

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Life Insurance Rates?

Purchasing Life Insurance has never been easier

Or give us a call...888-777-7574